Criticism of TARP persists

The Obama administration has been crowing lately about the repayments flowing in to the Troubled Asset Relief Program, and Thursday’s plan to end the bailout of American International Group was touted as the clearest sign yet that the controversial TARP has been a success.

But not everyone sees the AIG bailout that way.

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“The rescue of AIG continues to have a poisonous effect on the marketplace,” one critic said recently. “By providing a complete rescue that called for no shared sacrifice on the part of AIG and its creditors, the government fundamentally changed the rules of the game on Wall Street. As long as the biggest companies in America believe that you and I will bail them out, the worst effects of the AIG rescue will linger.”

The critic was not a Republican politician or some conservative think tank. It was Elizabeth Warren, President Barack Obama’s choice to set up the new agency that will protect consumers from financial system abuses, and her blunt assessment is shared to some extent by critics on the left and the right. A separate report by TARP inspector general Neil Barofsky raises similar questions, pointing out that TARP is only a small part of the financial rescue, and that the government’s total debts for that effort have actually been growing sharply.

No part of that bailout caused more outrage than the $185 billion rescue of AIG, the Connecticut-based insurance giant that helped create the bubble in mortgage-backed securities that nearly wrecked the financial system when it burst. But Treasury Secretary Timothy Geithner, who was heavily criticized for failing to stop AIG executives from paying themselves over $180 million in bonuses after the huge bailout, insisted Thursday there was happy ending in sight for taxpayers.

“The exit strategy announced today dramatically accelerates the timeline for AIG’s repayment and puts taxpayers in a considerably stronger position to recoup our investment in the company, he said.

Under the new repayment plan, the government will convert its 80 percent ownership stake in the company to common stock and sell it off over the next few years. Recouping that investment will depend on AIG’s continued success, and the strength of the stock market. If either falters, taxpayers could lose money, or be stuck with the company longer that Geithner hopes.